Financial Statements With Independent Auditors Report December 31, 2006 With Comparative Figures for PT HEXINDO ADIPERKASA Tbk

Transcription

1 Financial Statements With Independent Auditors Report December 31, 2006

2 FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS REPORT DECEMBER 31, 2006 WITH COMPARATIVE FIGURES FOR 2005 Table of Contents Page Independent Auditors Report Balance Sheets. 1-2 Statements of Income... 3 Statements of Changes in Equity... 4 Statements of Cash Flows.. 5 Notes to the Financial Statements ***************************

3 This report is originally issued in Indonesian language. Independent Auditors Report Report No. RPC-6759 The Shareholders, Boards of Commissioners and Directors PT Hexindo Adiperkasa Tbk We have audited the balance sheet of PT Hexindo Adiperkasa Tbk (the Company ) as of December 31, 2006, and the related statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of PT Hexindo Adiperkasa Tbk for the year ended December 31, 2005, were audited by Prasetio, Sarwoko & Sandjaja, whose report dated March 15, 2006, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards established by the Indonesian Institute of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2006 financial statements referred to above present fairly, in all material respects, the financial position of PT Hexindo Adiperkasa Tbk as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in Indonesia. Purwantono, Sarwoko & Sandjaja Peter Surja Public Accountant License No March 15, 2007 The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Indonesia. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in Indonesia.

4 BALANCE SHEETS December 31, 2006 A S S E T S Notes CURRENT ASSETS Cash on hand and in banks 3 78,098,332,782 43,476,065,896 Trade receivables Third parties - net of allowance for doubtful accounts of Rp12,832,634,179 in 2006 and Rp12,975,822,536 in b,4 232,252,671, ,825,888,863 Related parties 2c,5a 3,330,126,288 12,849,933,280 Other receivables 882,308,137 1,813,321,679 Inventories - net of allowance for inventories obsolescence of Rp26,560,368,430 in 2006 and Rp25,063,120,258 in d,6 458,128,382, ,529,802,692 Prepaid taxes and expenses 2e 3,268,440,621 19,578,334,988 Advances 1,273,800,850 14,752,937,179 TOTAL CURRENT ASSETS 777,234,062, ,826,284,577 NON-CURRENT ASSETS Due from related parties 2c,5b 14,787,171,568 2,653,929,358 Estimated claim for tax refund 23 43,838,992,419 16,033,305,062 Deferred tax assets - net 2l,23 10,938,155,381 11,518,716,048 Property and equipment - net of accumulated depreciation of Rp144,351,614,337 in 2006 and Rp74,810,948,156 in f,7,13 352,771,451, ,103,786,076 Other assets 2f 4,533,797, ,117,644 TOTAL NON-CURRENT ASSETS 426,869,568, ,687,854,188 TOTAL ASSETS 1,204,103,631,117 1,069,514,138,765 The accompanying notes form an integral part of these financial statements. 1

5 BALANCE SHEETS (continued) December 31, 2006 LIABILITIES AND EQUITY Notes CURRENT LIABILITIES Short-term bank loans 8 369,820,000, ,291,000,000 Trade payables Third parties 9 27,425,333,350 18,477,998,757 Related parties 2c,5c 211,519,336, ,939,177,870 Other payables 14,902,094,096 19,941,118,399 Accrued expenses 10 13,858,406,907 16,601,619,138 Taxes payable 2l,11 4,195,548,396 8,208,459,421 Current maturities of long-term liabilities: Other payables 7,13 57,754,969,800 22,952,263,600 Bank loan 12-58,980,000,000 Lease payable 2f - 700,040,255 TOTAL CURRENT LIABILITIES 699,475,688, ,091,677,440 NON-CURRENT LIABILITIES Due to related parties 2c,5d 562,038,906 2,764,985,644 Other payables - net of current portion 7,13 148,132,248,880 79,867,678,530 Estimated liability for employees benefits 2j,14 10,384,274,000 7,028,901,000 TOTAL NON-CURRENT LIABILITIES 159,078,561,786 89,661,565,174 EQUITY Share capital - par value Rp100 per share Authorized - 1,680,000,000 shares Issued and fully paid - 840,000,000 shares 1b,15 84,000,000,000 84,000,000,000 Additional paid-in capital - net 1b,2h,16 16,711,755,375 16,711,755,375 Retained earnings Appropriated 17 10,000,000,000 5,000,000,000 Unappropriated 234,837,625, ,049,140,776 TOTAL EQUITY 345,549,380, ,760,896,151 TOTAL LIABILITIES AND EQUITY 1,204,103,631,117 1,069,514,138,765 The accompanying notes form an integral part of these financial statements. 2

6 STATEMENTS OF INCOME Notes 2c,2i,18, NET REVENUES 25b,25c,25d 1,395,735,768,380 1,423,316,735,746 2c,2d,2i,5e, COST OF REVENUES 5f,19,25a (1,146,409,534,433) (1,122,205,271,734) GROSS PROFIT 249,326,233, ,111,464,012 OPERATING EXPENSES 2i,2j,20 Selling 116,115,397,867 88,385,832,970 General and administrative 75,041,291,996 69,705,441,312 Total operating expenses 191,156,689, ,091,274,282 OPERATING INCOME 58,169,544, ,020,189,730 OTHER INCOME (CHARGES) Gain (loss) on foreign exchange 2k 35,324,601,688 (4,351,794,955) Interest income 21 1,664,085, ,331,702 Financing cost 2c,5g,22 (39,470,335,368) (7,212,032,659) Reversal of allowance (provision) for doubtful accounts 2b,4 (199,661,175) 8,519,194,786 Miscellaneous - net 2f,7 2,450,160,159 1,099,777,429 Other charges - net (231,149,350) (1,350,523,697) INCOME BEFORE INCOME TAX 57,938,394, ,669,666,033 INCOME TAX EXPENSE 2l,23 Current (17,929,349,600) (42,372,177,500) Deferred (580,560,667) (1,526,398,200) Income tax expense (18,509,910,267) (43,898,575,700) NET INCOME 39,428,484,467 97,771,090,333 BASIC EARNINGS PER SHARE 2m The accompanying notes form an integral part of these financial statements. 3

7 STATEMENTS OF CHANGES IN EQUITY Issued and Additional Retained Earnings Fully Paid Paid-in Notes Shares Capital Capital - Net Appropriated Unappropriated Total Equity Balance, January 1, ,000,000,000 16,711,755,375 1,000,000, ,398,050, ,109,805,818 Cash dividends declared (36,120,000,000) (36,120,000,000) Appropriation for general reserve ,000,000,000 (4,000,000,000) - Net income in ,771,090,333 97,771,090,333 Balance, December 31, ,000,000,000 16,711,755,375 5,000,000, ,049,140, ,760,896,151 Cash dividends declared (38,640,000,000) (38,640,000,000) Appropriation for general reserve ,000,000,000 (5,000,000,000) - Net income in ,428,484,467 39,428,484,467 Balance, December 31, ,000,000,000 16,711,755,375 10,000,000, ,837,625, ,549,380,618 The accompanying notes form an integral part of these financial statements. 4

8 STATEMENTS OF CASH FLOWS Notes CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 1,326,279,961,622 1,429,477,315,652 Cash paid to: Suppliers (914,777,302,518) (1,418,667,785,894) Operating expenses and other operations activities (108,297,623,028) (105,873,801,771) Salaries, wages and benefit of employees (93,387,134,259) (80,328,684,397) Net cash provided by (used in) operations 209,817,901,817 (175,392,956,410) Payments for interest (37,115,466,107) (4,693,410,189) Payments for income taxes (49,748,947,982) (65,155,525,624) Net Cash Provided by (Used in) Operating Activities 122,953,487,728 (245,241,892,223) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 7 1,188,533, ,756,500 Acquisitions of property and equipment 7 (75,599,937,400) (30,152,509,020) Net Cash Used in Investing Activities (74,411,403,492) (29,763,752,520) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term bank loans 8 420,460,000, ,230,500,000 Payment of short-term bank loans 8 (299,754,000,000) (63,904,000,000) Payment for cash dividends 17 (38,640,000,000) (36,120,000,000) Payment of lease payable (700,040,255) (1,291,982,738) Payment of other payables 13 (40,565,777,095) (1,132,690,590) Payment of long-term bank loans 12 (54,720,000,000) - Net Cash Provided by (Used in) Financing Activities (13,919,817,350) 240,781,826,672 NET INCREASE (DECREASE) IN CASH ON HAND AND IN BANKS 34,622,266,886 (34,223,818,071) CASH ON HAND AND IN BANKS AT BEGINNING OF YEAR 3 43,476,065,896 77,699,883,967 CASH ON HAND AND IN BANKS AT END OF YEAR 3 78,098,332,782 43,476,065,896 SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: Acquisition of property and equipment through incurrence of other payables 7,13 157,743,517, ,094,414,880 Write-off of inventories 6 3,002,751,828 3,280,525,310 Reclassification of property and equipment to inventories 6,7 2,348,477,039 24,577,006,409 Write-off of trade receivables 4 342,849, ,836,925 The accompanying notes form an integral part of these financial statements. 5

9 1. GENERAL a. Establishment of the Company PT Hexindo Adiperkasa Tbk (the Company ) was established in Indonesia on November 28, 1988 based on Notarial Deed No. 37 of Mohamad Ali, S.H. The Deed of Establishment was approved by the Ministry of Justice of Republic Indonesia in its Decision Letter No. C HT TH.89 dated May 12, 1989, and was published in Supplement No of the State Gazette No. 54 dated July 7, Its Articles of Association has been amended several times, the latest was amended by Notarial Deed No. 66 dated June 22, 2006 of Fathiah Helmi, S.H., Notary in Jakarta, concerning the commissioner s duties and authorities, and the procedures in the announcement of the shareholders general meetings. These amendments were accepted and recorded in the Department of Justice and Human Rights of Republic Indonesia through its Letter No. W7-HT dated September 18, The Company started its commercial operations in January According to Article 3 of the Company's Articles of Association, its scope of activities comprises of trading and rental of heavy equipment and rendering of after-sales services. Presently, the Company acts as a distributor of certain heavy equipment and related spare parts under the trademarks of Hitachi, John Deere and Krupp. The Company is domiciled in Jakarta and located at Kawasan Industri Pulo Gadung, Jalan Pulo Kambing II Kav. I-II No. 33, Jakarta As of December 31, 2006, the Company has 10 main branches, 5 sub-branches, 7 representative offices and 6 project offices, which are all located at various places in Indonesia. b. Company s Initial Public Offering The Company s Registration Statement for its public offering of its 10 million shares (with Rp1,000 par value per share) at an offer price of Rp2,800 per share became effective in accordance with the Letter No. S-1958/PM/1994 dated December 5, 1994 issued by the Chairman of the Capital Market Supervisory Agency (BAPEPAM). All the Company s shares have been registered in the Jakarta Stock Exchange since February 13, The Company s Registration Statement for its First Limited Public Offering of 42 million shares to shareholders with preemptive rights (with Rp1,000 par value per share) at an offer price of Rp1,000 per share became effective in accordance with Letter No. S-1264/PM/1998 dated June 19, 1998 issued by the Chairman of BAPEPAM. In the minutes of the Extraordinary Shareholders Meeting of the Company held on June 12, 2000, as covered by Notarial Deed No. 12 on the same date of Fathiah Helmi, S.H., Notary in Jakarta, the shareholders resolved to amend its Articles of Association, which include, among others, change in par value from Rp1,000 per share to Rp500 per share. These amendments were accepted and recorded by the Department of Justice and Human Rights of Republic Indonesia in its Letter No.C HT Th.2000 dated September 20, On July 29, 2002, the stock split was effectively implemented. In the minutes of the Extraordinary Shareholders Meeting of the Company held on June 15, 2004, as covered by Notarial Deed No. 24 on the same date of Fathiah Helmi, S.H., Notary in Jakarta, the shareholders resolved to change the par value from Rp500 per share to Rp100 per share. This amendment was accepted and recorded by the Department of Justice and Human Rights of Republic Indonesia in its Letter No.C HT Th.2004 dated September 17, On September 1, 2005, the change of the par value was effectively implemented. 6

10 1. GENERAL (continued) c. Boards of Commissioners, Directors, Audit Committee and Employees The composition of the Company s boards of commissioners and directors as of December 31, 2006, based on the minutes of the Annual Shareholders General Meeting of the Company held in Jakarta on June 22, 2006, as covered by Notarial Deed No. 65 on the same date of Fathiah Helmi, S.H., are as follows: Board of Commissioners: Kardinal Alamsyah Karim, MM. - President Commissioner Gunawan Setiadi Martono - Commissioner Harry Danui - Commissioner Board of Directors: Manuntun Situmorang - President Director Toshiaki Takase - Director Takaaki Teranishi - Director Masaaki Hirose - Director Yoshiya Hamamachi - Director Keiichiro Shiojima - Director Tony Endroyoso - Director Hiroshi Naito - Director Naoki Kito - Director The composition of the Company s boards of commissioners and directors as of December 31, 2005, based on the minutes of the Annual Shareholders General Meeting of the Company held in Jakarta on June 21, 2005, as covered by Notarial Deed No. 42 on the same date of Fathiah Helmi, S.H., are as follows: Board of Commissioners: Kardinal Alamsyah Karim, MM. - President Commissioner Gunawan Setiadi Martono - Commissioner Harry Danui - Commissioner Board of Directors: Manuntun Situmorang - President Director Tamotsu Yamada - Director Takaaki Teranishi - Director Masaaki Hirose - Director Yoshiya Hamamachi - Director Keiichiro Shiojima - Director Tony Endroyoso - Director Mitsuhiro Tabei - Director Naoki Kito - Director The composition of the Company s Audit Committee as of December 31, 2006 and 2005 are as follows: Kardinal Alamsyah Karim, MM. - Chairman Katjep K. Abdoelkadir DR. - Member Dedi Djuanda - Member 7

11 1. GENERAL (continued) c. Boards of Commissioners, Directors, Audit Committee and Employees (continued) The salaries and other compensations benefits incurred for the Company s commissioners and directors amounted to Rp8,118,017,672 in 2006 and Rp9,472,174,771 in As of December 31, 2006 and 2005, the Company has 824 employees and 751 employees (unaudited), respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Preparation of the Financial Statements The financial statements are prepared in accordance with generally accepted accounting principles in Indonesia, which are the Statements of Financial Accounting Standards (PSAK), BAPEPAM regulations and the Guidelines for Financial Statements Presentation as circulated by BAPEPAM for trading companies, which offer their shares to the public. The financial statements are prepared on the historical cost basis, except for inventories, which are valued at the lower of cost or net realizable value. The financial statements are prepared based on accrual basis, except for statements of cash flows. The statements of cash flows present cash receipts and payment classified into operating, investing and financing activities using the direct method. The reporting currency used in the financial statements is Indonesian Rupiah. b. Allowance for Doubtful Accounts The Company provides allowance for doubtful accounts based on a review on the condition of accounts receivable at balance sheet date. c. Transactions with Related Parties The Company has transactions with certain related parties. Related parties are defined in accordance with Statement of Financial Accounting Standards (PSAK) No. 7, Related Party Disclosures. All transactions with related parties are disclosed in the notes to the financial statements. d. Inventories Inventories are stated at the lower of cost or net realizable value. Heavy equipment inventories reclassified from heavy equipment previously leased out are stated at net book value at the date of reclassification, which are generally at the end of the lease terms. The cost of heavy equipment is determined by the specific identification method while the cost of spare parts is determined using the average method. Allowance for inventories obsolescence is provided based on a review of the condition of the inventories at balance sheet date. 8

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Prepaid Expenses Prepaid expenses are charged to operations over the periods benefited. f. Property and Equipment 1. Direct ownership Property and equipment are stated at cost less accumulated depreciation, except for land which is not depreciated. Depreciation, except heavy equipment being leased out is computed using the straight-line method over the estimated useful lives of the assets as follows: Years Rate Buildings 20 5% Vehicles, office equipment, furniture and fixtures and machineries 5 20% Tools for after-sales services 2 50% Depreciation for heavy equipment being leased out is based on operational hours and over the term of the lease, which are in line with the related rental agreements, after considering the residual value of 10%. The cost of repairs and maintenance is charged to income as incurred. Significant renewals and betterments which extend the assets useful lives are capitalized to the related property and equipment account. When assets are retired or otherwise disposed of, their cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income for the year. Costs incurred in connection with the acquisition or renewal of landrights are deferred and amortized over the lower of legal terms of the related landrights or economic lives of the land using the straight-line method. The deferred charges are presented as part of Other Assets in the balance sheets. 2. Leases Lease transactions are accounted for under the capital lease method of accounting when the required capitalization criteria in accordance with PSAK No. 30, Accounting for Lease Transactions are met. Leases that do not meet any of the required capitalization are accounted for under the operating lease method. In the capital lease method, the leased assets are presented in Property and Equipment account, and the related liability is presented as Lease Payable. Leased assets are recorded at the present value of all lease payments plus residual value (option price) which should be paid by the Company at the end of the lease term. Depreciation of leased assets are computed using the straight-line method based on the estimated useful lives which is same with the estimated useful lives of directly-owned property and equipment. 9

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Property and Equipment (continued) 3. Construction in progress Construction in progress represents the accumulated cost of materials and other costs related to the asset under construction. When the asset is completed and ready for its intended use, these costs are reclassified to the related accounts. g. Impairment in Assets Value At balance sheet date, asset values are reviewed by the Company for any indication of impairment due to possible events or changes in circumstances that the carrying value may not be fully recoverable. Impairment in asset value, if any, is recognized as loss in the statement of income of the current year. h. Additional Paid-in Capital - Net Additional Paid-in Capital-Net is the difference between the offering price and the par value of share capital issued, net of the costs incurred in connection with the public offering. i. Revenue and Expense Recognition Revenue from sale of heavy equipment and spare parts are recognized when the heavy equipment and spare parts are delivered to the customers. Revenue from repairs and maintenance services is recognized when the services are rendered to the customers. Revenue from rental of heavy equipment is recognized based on heavy equipment usage in accordance with the related agreement. Expenses are recognized when incurred. j. Estimated Liability for Employees Benefits The Company adopts PSAK No. 24 (Revised 2004), Employee Benefits that recognizes the accounting and disclosures of estimated liability for employees benefits. Total estimated liability for employees benefits is calculated in accordance with the Labor Law No. 13 Year 2003 dated March 25, Under PSAK No. 24 (Revised 2004), the defined benefit obligation, current service cost and past service cost are calculated using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting year exceeded 10% of the defined benefit obligation at that date. These gains or losses are recognized on a straight line basis over the expected average remaining working lives of the employees. Further, pastservice costs arising from the introduction of a defined benefit plan or changes in the benefit payable of an existing plan are required to be amortized over the period until the benefits concerned become vested. 10

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k. Foreign Currency Transactions and Balances Transactions involving foreign currencies are recorded in Rupiah at the rates of exchange prevailing at the time the transactions are made. At balance sheet date, monetary assets and liabilities denominated in foreign currencies are adjusted to Rupiah to reflect the prevailing rates of exchange as published by Bank Indonesia middle rate of that date. The resulting gains or losses are credited or charged to operations for the year. As of December 31, 2006 and 2005, the rates of exchange used are based on Bank Indonesia s average selling and buying bank notes and/or transaction exchange rate on December 29, 2006 and December 30, 2005, respectively, as follows: 1 Euro (EUR) 11,858 11,660 1 United States Dollar (US$) 9,020 9,830 1 Australian Dollar (AUD) 7,133 7,207 1 Singapore Dollar (SGD) 5,879 5,907 1 Japanese Yen (JP ) l. Income Tax Current tax expense is provided based on the estimated taxable income for the year. Deferred tax assets and liabilities are recognized for temporary differences between the financial and the tax bases of assets and liabilities at each reporting date. Future tax benefits, such as the carry-forward of unused tax losses, are also recognized to the extent that realization of such benefits is probable. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The carrying amount of deferred tax asset is reviewed at the balance sheet date and adjusted to the extent that it is no longer probable that part or all of that deferred income tax assets will be realized in future. Amendments to tax obligations are recorded when an assessment is received or, if appealed against by the Company, when the result of the appeal is determined. m. Basic Earnings per Share Basic earnings per share is computed by dividing the net income for the year with the weightedaverage number of the shares outstanding during the year. The weighted average number of shares outstanding in 2006 and 2005 are 840,000,000 shares, respectively. 11

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n. Segment Information The Company classifies its segment reporting as follows: (i) Business segment (primary) based on the nature of its products sold such as sales and rental of heavy equipment, repairs and maintenance services and sales of spare parts of heavy equipment. (ii) Geographical segment (secondary) based on location of sales such as within Java island and outside Java island. o. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimations and assumptions that affect amounts reported therein. Due to inherent uncertainty in making estimates, actual results reported in future periods might be based on amounts that differ from those estimates. Any differences on the estimates and actual result is charged or credited to current operations. 3. CASH ON HAND AND IN BANKS This account consists of: Cash on hand 308,534, ,130,846 Cash in banks: United States Dollar accounts PT Bank Internasional Indonesia Tbk (US$4,277,556 in 2006 and US$1,049,852 in 2005) 38,583,553,857 10,320,045,946 The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta* (US$1,678,574 in 2006 and US$1,406,917 in 2005) 15,140,738,382 13,829,992,734 Citibank N.A., Jakarta (US$546,462 in 2006 and US$20,964 in 2005) 4,929,085, ,071,697 The Bank of Tokyo-Mitsubishi UFJ, Ltd., Singapore* (US$254,365 in 2006 and US$45,172 in 2005) 2,294,373, ,041,546 PT Bank Shinta (US$139,787) 1,260,877,477 - PT Bank Mega Tbk (US$77,773 in 2006 and US$1,765 in 2005) 701,517,150 17,345,133 PT Bank Resona Perdania (US$40,840 in 2006 and US$49,448 in 2005) 368,381, ,074,725 PT Bank Mizuho Indonesia (US$35,546) 320,621,132 - Total United States Dollar Accounts 63,599,148,126 25,303,571,781 12

16 3. CASH ON HAND AND IN BANKS (continued) Rupiah accounts PT Bank Internasional Indonesia Tbk 4,785,430,869 6,484,782,148 PT Bank Mega Tbk 3,916,048, ,817,521 PT Bank Lippo Tbk 3,280,817,282 3,496,761,865 PT Bank Rakyat Indonesia (Persero) Tbk 615,381,069 2,716,163,854 PT Bank Resona Perdania 575,059,589 4,331,809,099 The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta* 454,301, ,822,423 PT Bank Danamon Indonesia Tbk 171,972,489 91,959,836 PT Bank Mandiri (Persero) Tbk 95,266,395 18,957,830 Citibank N.A., Jakarta 82,097,293 59,872,931 PT Bank Negara Indonesia (Persero) Tbk 80,156, ,797,653 PT Bank Mizuho Indonesia 9,946,179 - Total Rupiah Accounts 14,066,477,981 17,647,745,160 Japanese Yen accounts PT Bank Internasional Indonesia Tbk (JP 994,581 in 2006 and JP 1,002,096 in 2005) 75,389,238 83,594,883 The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta* (JP 643,570 in 2006 and JP 935,306 in 2005) 48,782,606 78,023,226 Total Japanese Yen Accounts 124,171, ,618,109 Total Cash in Banks 77,789,797,951 43,112,935,050 Total Cash on Hand and in Banks 78,098,332,782 43,476,065,896 * The Bank of Tokyo-Mitsubishi UFJ, Ltd., represents the merged bank between The Bank of Tokyo-Mitsubishi Ltd., and UFJ Bank Ltd., in TRADE RECEIVABLES - THIRD PARTIES This account consists of receivables arising from: Sales and rental of heavy equipment used in: Plantation and logging 96,059,474,163 19,009,438,357 Mining 43,419,595,042 50,797,985,707 Government projects and constructions 1,155,919,635 7,085,250,299 Total 140,634,988,840 76,892,674,363 Repairs and maintenance services 61,832,154,393 76,881,056,756 Sales of spare parts 42,618,162,214 20,027,980,280 Total 245,085,305, ,801,711,399 Less allowance for doubtful accounts 12,832,634,179 12,975,822,536 Net 232,252,671, ,825,888,863 13

17 4. TRADE RECEIVABLES - THIRD PARTIES (continued) The movements of allowance for doubtful accounts during the year are as follows: Balance at beginning of year 12,975,822,536 22,093,854,247 Allowance (reversal of allowance) during the year 199,661,175 (8,519,194,786) Write-off of accounts during the year (342,849,532) (598,836,925) Balance at end of year 12,832,634,179 12,975,822,536 The aging analysis of trade receivables based on due dates are as follows: Sales and rental of heavy equipment Current and less than 3 months 135,463,925,585 72,757,537, months 2,581,202,928 2,816,766,304 Over 6 months - 1 year 1,746,693,169 1,318,370,230 Over 1 year 843,167,158 - Total receivables - sales and rental of heavy equipment 140,634,988,840 76,892,674,363 Repairs and maintenance services Current and less than 3 months 60,867,741,672 76,225,292, months 607,773, ,170,534 Over 6 months -1 year 353,579, ,647,069 Over 1 year 3,060,000 25,947,113 Total receivables - repairs and maintenance services 61,832,154,393 76,881,056,756 Sales of spare parts Current and less than 3 months 42,056,816,302 18,910,808, months 120,062, ,396,099 Over 6 months - 1 year 406,897, ,791,501 Over 1 year 34,385,826 42,984,100 Total receivables - sales of spare parts 42,618,162,214 20,027,980,280 Total 245,085,305, ,801,711,399 The details of trade receivables based on original currencies are as follows: United States Dollar (US$24,734,612 in 2006 and US$15,295,311 in 2005) 223,106,197, ,352,904,395 Rupiah 21,979,107,969 23,448,807,004 Total 245,085,305, ,801,711,399 14

18 4. TRADE RECEIVABLES - THIRD PARTIES (continued) Trade receivables from certain customers amounting to US$354,752 and Rp2,108,779 as of December 31, 2006 and amounting to US$78,386 and Rp2,122,158 as of December 31, 2005 were charged with interest at 4%-10% per year for receivables in US dollar and 10%-25% per year for receivables in Rupiah (Note 21). The Company s management believes that the allowance for doubtful accounts is adequate to cover possible losses from uncollectible accounts. 5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES a. Trade Receivables The details of trade receivables from related parties on sales transactions are as follows: Percentage to Total Assets Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore (US$258,102 in 2006 and US$1,307,216 in 2005) 2,328,080,040 12,849,933, Hitachi Construction Machinery Co., Ltd., Japan (US$110,600) 997,612, PT Hitachi Construction Machinery Indonesia 4,434, Total 3,330,126,288 12,849,933, Receivables from Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore and Hitachi Construction Machinery Co., Ltd., Japan represent receivables from commissions as sales agent unit to certain third parties (Notes 25c and 25d). Commission income earned amounting to Rp23,136,299,524 and Rp39,695,043,050 or representing 1.66% and 2.79%, respectively, from net revenues in 2006 and 2005, respectively. The Company s management believes that all trade receivables from related parties can be collected, and thus no allowance for doubtful accounts were provided for. 15

19 5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued) b. Due From Related Parties The details of due from related parties for transactions outside the Company s main business are as follows: Percentage to Total Assets Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore 6,979,356, Hitachi Construction Machinery Co., Ltd., Japan 4,463,839, ,871, Employees 2,667,393,573 1,531,620, Others (below Rp500 million each) 676,581, ,437, Total 14,787,171,568 2,653,929, Receivables from Hitachi Construction Machinery Asia and Pacific Pte., Ltd., (HCMAP), formerly Hitachi Construction Machinery Pte., Ltd., Singapore represent claims over the spare parts inventories that were returned to HCMAP since these are obsolete, damaged or out of date inventories. Receivables from Hitachi Construction Machinery Co., Ltd., Japan represent reimbursement claims on repairs of machineries under warranty. Receivables from employees mainly represent non-interest vehicles and housing loans that are collectible through monthly payroll deductions. The details of due from related parties based on original currencies are as follows: United States Dollar (US$1,319,755 in 2006 and US$20,326 in 2005) 11,904,187, ,800,255 Rupiah 2,882,983,955 2,454,129,103 Total 14,787,171,568 2,653,929,358 The Company s management believes that all due from related parties can be collected, and thus no allowance for doubtful accounts were provided for. 16

20 5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued) c. Trade Payables The details of trade payables to related parties are as follows: Percentage to Total Liabilities Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore 116,609,823, ,332,433, PT Hitachi Construction Machinery Indonesia (Notes 5g and 22) 93,525,852,610 5,188,171, Hitachi Construction Truck Manufacturing Ltd., Canada 1,131,529, ,150, Others (below Rp500 million each) 252,129,921 60,422, Total 211,519,336, ,939,177, Payables to Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore and PT Hitachi Construction Machinery Indonesia represent payables on purchases of spare parts inventories and heavy equipment machineries. Payable to Hitachi Construction Truck Manufacturing Ltd., Canada (HCTM) represents cash collections from a HCMT s customer received in advance by the Company that are not yet remitted to HCTM. The details of trade payables to related parties based on original currencies are as follows: United States Dollar (US$22,739,034 in 2006 and US$22,037,962 in 2005) 205,106,089, ,633,166,559 Rupiah 6,159,583, ,588,537 Japanese Yen (JP 3,314,253 in 2006 and JP 724,320 in 2005) 251,220,377 60,422,774 Singapore Dollar (SGD416) 2,443,318 - Total 211,519,336, ,939,177,870 17

21 5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued) d. Due to Related Parties The details of due to related parties from transactions outside the Company s main business are as follows: Percentage to Total Liabilities Hitachi Construction Machinery Co., Ltd., Japan (US$49,420 in 2006 and US$269,190 in 2005) 445,771,106 2,646,140, Itochu Corporation, Japan (US$12,890 in 2006 and US$12,090 in 2005) 116,267, ,844, Total 562,038,906 2,764,985, Due to Hitachi Construction Machinery Co., Ltd., Japan (HCMJ) represents the Company s expenses that were paid in advance by HCMJ. e. Purchases The details of purchases of heavy equipment and spare parts from related parties are as follows: Percentage to Total Purchases Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore 398,314,772, ,726,078, PT Hitachi Construction Machinery Indonesia 376,201,942, ,972,117, Total 774,516,715, ,698,196, f. Royalty Expense Hitachi Construction Machinery Co., Ltd., Japan charged the Company with royalty for the sales of certain products amounting to Rp410,185,171 and Rp239,936,932 or representing 0.04% and 0.02% from total cost of revenues in 2006 and 2005, respectively, and recorded as part of Cost of Revenues in the statements of income (Note 25a). g. Interest Expense Interest expenses in relation to the purchase of inventory on credit from PT Hitachi Construction Machinery Indonesia amounting to Rp1,569,900,844 and Rp403,713,923 or representing 3.98% and 5.60%, respectively, from the financing cost in 2006 and 2005, respectively, are recorded as part of Financing Cost in the statements of income. The credits bear interest at annual rate of 2% above SIBOR (Notes 5c and 22). 18

22 5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued) The nature of relationship of the Company with related parties are as follows: Names of Related Parties Relationship 1. Hitachi Construction Machinery Co., Ltd., Japan Shareholder 2. Hitachi Construction Machinery Asia and Pacific Pte., Ltd., formerly Hitachi Construction Machinery Pte., Ltd., Singapore Shareholder 3. Itochu Corporation, Japan Shareholder 4. Hitachi Construction Truck Manufacturing Ltd., Canada Affiliate 5. PT Hitachi Construction Machinery Indonesia Affiliate 6. INVENTORIES - NET This account consists of: Heavy equipment 100,539,076, ,711,111,239 Spare parts 384,149,674, ,881,811,711 Total 484,688,751, ,592,922,950 Less allowance for inventories obsolescence 26,560,368,430 25,063,120,258 Net 458,128,382, ,529,802,692 The movements of allowance for inventories obsolescence during the year are as follows: Balance at beginning of year 25,063,120,258 22,486,611,829 Provision during the year 4,500,000,000 5,857,033,739 Write-off during the year (3,002,751,828) (3,280,525,310) Balance at end of year 26,560,368,430 25,063,120,258 All inventories are covered by insurance against losses from fire and other risks under blanket policies of Rp317,456,873,584 as of December 31, 2006 and Rp305,873,731,420 as of December 31, 2005, respectively, which the Company s management believes that the insurance coverage is adequate to cover possible losses arising from such risk. The management believes that the allowance for inventories obsolescence is adequate to cover possible losses from inventories obsolescence. 19

23 7. PROPERTY AND EQUIPMENT This account consists of: Beginning Additions/ Deductions/ Ending 2006 Balance Reclassifications Reclassifications Balance Cost Direct ownership Land 20,801,764, ,801,764,264 Buildings 42,246,727,773 8,590,458,671-50,837,186,444 Vehicles 26,666,274,442 4,168,200,000 2,882,262,033 27,952,212,409 Office equipment 17,665,332,778 3,427,156, ,490,358 20,712,999,028 Furniture and fixtures 5,795,684,697 1,630,316,975 9,956,793 7,416,044,879 Machineries 6,002,178,502 1,633,148,580-7,635,327,082 Tools for after-sales services 14,963,818,829 4,119,849,913-19,083,668,742 Heavy equipment - rental (Note 13) 132,200,177, ,347,100,517 7,863,414, ,683,862,722 Capital lease vehicle 4,168,200,000-4,168,200,000 - Construction in progress 4,404,575,934 3,829,504,852 8,234,080,786 - Total Cost 274,914,734, ,745,736,116 23,537,404, ,123,065,570 Accumulated Depreciation Direct ownership Buildings 9,435,206,625 2,354,361,888-11,789,568,513 Vehicles 19,967,735,410 5,147,755,618 2,870,103,866 22,245,387,162 Office equipment 12,432,757,845 2,081,400, ,630,099 14,141,528,514 Furniture and fixtures 2,985,949, ,745,981 9,956,793 3,853,739,081 Machineries 3,855,555, ,990,439 4,643,545,628 Tools for after-sales services 12,856,451,638 2,770,691,112 15,627,142,750 Heavy equipment - rental 11,210,384,461 66,355,255,997 5,514,937,769 72,050,702,689 Capital lease Vehicle 2,066,907, ,350,000 2,414,257,095 - Total Accumulated Depreciation 74,810,948,156 80,722,551,803 11,181,885, ,351,614,337 Net Book Value 200,103,786, ,771,451,233 Beginning Additions/ Deductions/ Ending 2005 Balance Reclassifications Reclassifications Balance Cost Direct ownership Land 20,801,764, ,801,764,264 Buildings 32,896,655,637 9,350,072,136-42,246,727,773 Vehicles 23,052,017,231 5,957,673,615 2,343,416,404 26,666,274,442 Office equipment 15,045,573,540 3,863,749,505 1,243,990,267 17,665,332,778 Furniture and fixtures 3,871,260,726 2,111,840, ,416,489 5,795,684,697 Machineries 4,637,988,147 1,535,272, ,081,749 6,002,178,502 Tools for after-sales services 14,031,273,752 2,155,785,681 1,223,240,604 14,963,818,829 Heavy equipment - rental (Note 13) 86,823,209, ,947,793,553 79,570,826, ,200,177,013 Capital lease vehicle 5,369,600,000-1,201,400,000 4,168,200,000 Construction in progress 2,878,439,088 8,304,360,674 6,778,223,828 4,404,575,934 Total cost 209,407,782, ,226,547,728 92,719,595, ,914,734,232 Accumulated Depreciation Direct ownership Buildings 7,566,888,478 1,868,318,147-9,435,206,625 Vehicles 19,541,731,789 2,741,029,792 2,315,026,171 19,967,735,410 Office equipment 11,547,408,157 1,980,153,394 1,094,803,706 12,432,757,845 Furniture and fixtures 2,588,362, ,729, ,142,810 2,985,949,893 Machineries 3,434,335, ,025, ,805,116 3,855,555,189 Tools for after-sales service 12,585,506,921 1,478,324,433 1,207,379,716 12,856,451,638 Heavy equipment - rental 45,331,215,778 20,872,988,529 54,993,819,846 11,210,384,461 20

24 7. PROPERTY AND EQUIPMENT (continued) Beginning Additions/ Deductions/ Ending 2005 Balance Reclassifications Reclassifications Balance Capital lease Vehicle 1,791,350, ,779, ,223,333 2,066,907,095 Total Accumulated Depreciation 104,386,799,515 31,045,349,339 60,621,200,698 74,810,948,156 Net Book Value 105,020,982, ,103,786,076 Depreciation was charged to operations as follows: Cost of rental heavy equipment 66,355,255,997 20,872,988,529 Selling (Note 20) 6,694,347,925 5,222,227,004 General and administrative (Note 20) 5,258,690,786 4,271,910,473 Total 78,308,294,708 30,367,126,006 The Company s land is under Hak Guna Bangunan (HGB) (non-ownership with limited duration) and Hak Milik. As of December 31, 2006, the landrights under HGB will expire in 2 to 29 years and are renewable upon their expiry. Heavy equipment - rental represents assets that are leased out by the Company to third parties with leased terms ranging from 42 months to 60 months. In 2006 and 2005, certain heavy equipment with net book value of Rp2,348,477,039 and Rp24,577,006,409, respectively, were reclassified to inventories as the related lease terms already expired. The details of construction in progress as of December 31, 2005 are as follows: Percentage of Accumulated Estimated Completion Costs Completion Date Building 50% 3,933,358,485 April 2006 Tools for after sales service 40% 471,217,449 March 2006 Total 4,404,575,934 The deductions in property and equipment represents of sale and write-off of assets with details as follows: Proceeds 1,188,533, ,756,500 Net book value 19,018, ,987,995 Gain on disposals of assets 1,169,515, ,768,505 Property and equipment, except for land, are covered by insurance against losses by fire and other risks under blanket policies of US$41,584,650 and Rp151,512,117,740 as of December 31, 2006 and US$12,720,200 and Rp202,595,304,638 as of December 31, 2005, respectively, which in the Company s management believes that the insurance is adequate to cover possible losses arising from such risks. 21

25 7. PROPERTY AND EQUIPMENT (continued) In 2005, land and buildings, where the Company s office is occupied, located in East Jakarta, are pledged as collateral to bank loan facilities from PT Bank Resona Perdania (Note 8). As of December 31, 2006, the Company s management believes that there is no events or conditions that may indicate impairment of assets. 8. SHORT-TERM BANK LOANS This account represents short-term bank loan obtained from the following banks: The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta* (US$27,000,000 in 2006 and US$16,000,000 in 2005) 243,540,000, ,280,000,000 The Bank of Tokyo-Mitsubishi UFJ, Ltd., Singapore* (US$5,000,000 in 2006 and US$10,000,000 in 2005) 45,100,000,000 98,300,000,000 PT Bank Mizuho Indonesia (US$5,000,000) 45,100,000,000 - Citibank, N.A., Jakarta (US$4,000,000) 36,080,000,000 - PT Bank Resona Perdania (US$1,700,000) - 16,711,000,000 Total 369,820,000, ,291,000,000 * The Bank of Tokyo-Mitsubishi UFJ, Ltd., represents the merged bank between The Bank of Tokyo-Mitsubishi Ltd., and UFJ Bank Ltd., in The loans obtained from The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta consist of: - Unsecured short-term loan amounting to US$2,000,000 with a maximum credit facility of US$2,000,000 that will expire on July 31, The loan bears interest at 0.50% above SIBOR per year and payable every 3 months. - Multi-currency loan of US$25,000,000 with a maximum credit facility of US$25,000,000. On November 10, 2006, the Company paid the loan amounting to US$20,000,000 (including the longterm bank loan of US$6,000,000) (Note 12). On the same day, the Company obtained a new multicurrency loan facility amounting to US$25,000,000 that will due on November 10, The loan bears interest at 0.375% above LIBOR per year, which is payable every 3 months and guaranteed by Hitachi Construction Machinery Co., Ltd., Japan, a shareholder. The loans are payable in 3 months since date of drawdown but subject to roll-over every 3 months until the end of facility. The Company and its related parties (i.e. Hitachi Construction Machinery Asia and Pacific Pte., Ltd., Singapore, Hitachi Construction Machinery Thailand Co., Ltd., Thailand, PT Hitachi Construction Machinery Indonesia and Hitachi Construction Machinery Sdn., Bhd., Malaysia) obtained a multicurrency loan facility from The Bank of Tokyo-Mitsubishi UFJ, Ltd., Singapore with maximum credit facility amounting to US$30,000,0000. On November 10, 2006, the maximum credit facility decreased from US$32,000,000 to US$30,000,000. The loan will expire on November 10, 2008 and bears interest at 0.375% above LIBOR per year, which is payable every 3 months. This loan is guaranteed by Hitachi Construction Machinery Co., Ltd., Japan, a shareholder. The loan is payable in 3 months since date of drawdown but subject to be roll-over every 3 months until the end of facility. 22

26 8. SHORT-TERM BANK LOANS (continued) The related loan agreements with The Bank of Tokyo-Mitsubishi UFJ, Ltd., Jakarta and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Singapore, contain certain restriction on the Company, among others, change of its business, and sell, lease, transfer or otherwise dispose substantial part of its assets unless such activity is made in the ordinary course of the Company s business. On April 21, the Company obtained a short-term working capital facility from PT Bank Mizuho Indonesia with a maximum credit facility of US$10,000,000 and will expire on April 21, The loan bears interest at 1.25% above SIBOR per year, which is payable in 3 months. The loan contains certain restriction on the Company, among others, to consolidate with or merge into any other corporation, change of business, and sell, lease, assign, transfer and lend part of its assets. On June 5, 2006, Company obtained a short-term working capital facility from Citibank, N.A., Jakarta with a maximum credit facility of US$15,000,000 and will expire on June 5, The loan bears interest at 0.75% above LIBOR per year, which is payable in 3 months. The loan obtained from PT Bank Resona Perdania is from the promissory note loan facility with a maximum credit of US$2,000,000. The loan amounting to US$1,700,000,000 was paid on August 31, The related loan facility will expire on May 18, 2007 and bears interest at annual rate of 1.25% above SIBOR which is payable monthly. The loan is secured by land and buildings located in East Jakarta (Note 7). 9. TRADE PAYABLES - THIRD PARTIES The details of trade payables - third parties in relation to the purchases of goods and services are as follows: Spare parts 17,214,137,622 5,774,928,169 Repairs and maintenance 7,811,592,498 7,953,708,703 Heavy equipment 103,337,454 1,138,344,012 Others 2,296,265,776 3,611,017,873 Total 27,425,333,350 18,477,998,757 Currently, the Company can not present the aging schedule of trade payables, because the Company s accounting system can not generate such information. 23

27 10. ACCRUED EXPENSES This account consists of accruals for: Interest 5,075,680,777 2,720,811,516 Salaries and employee benefits 4,128,396,971 6,567,770,921 Sales of heavy equipment 2,408,961,235 4,318,711,241 Repairs and maintenance services - 1,241,245,572 Others 2,245,367,924 1,753,079,888 Total 13,858,406,907 16,601,619,138 Accruals for sales of heavy equipment mainly represent accruals for, among others, incentives paid to salesman and to other third parties, cost incurred in training, and maintenance costs for the warranty in connection with the Company s sales of heavy equipment. Accruals for repairs and maintenance services mainly represent accruals for costs incurred in, among others, establishing full maintenance site support in connection with repairs and maintenance services. 11. TAXES PAYABLE Taxes payable represents income taxes payable on: Article 21 2,920,981,072 6,197,502,794 Article ,567, ,631,131 Article 25 - December 650,000,000 1,492,325,496 Total 4,195,548,396 8,208,459, LONG-TERM BANK LOAN On December 31, 2005, this account represents long-term bank loan obtained from PT Bank UFJ Indonesia, Jakarta amounting to US$6,000,000 and has been fully paid on November 10, 2006 (Note 8). The loan bears interest at 0.375% above LIBOR per year payable in quarterly installments. This loan was secured by a corporate guarantee from Hitachi Construction Machinery Co., Ltd., Japan, a shareholder. 13. OTHER PAYABLES This account represents long-term payables to Mitsubishi Corporation in US dollar currency to purchase 14 units of equipment that will be rented out to PT Kaltim Prima Coal. The loan is payable in quarterly installment on 4 years and bears interest at an average of 8.50% per year. The payables are guaranteed by certain heavy equipment rented out with net book value amounting to Rp238,637,806,000 and Rp118,570,463,231 as of December 31, 2006 and 2005, respectively, (Note 7). The future installment payment of these payables are as follows: 24